Guest Opinion: A little-known incentive for Iowa business owners

Economic incentives to attract new business to Iowa grab headlines for good reason. Deals with companies such as Facebook Inc., MidAmerican Energy Co. and Iowa Fertilizer Co. hold the hope for significant private investment and new employment opportunities for Iowans.

Equally important are efforts to keep companies in Iowa and create an environment where they can succeed and grow. Recently Gov. Terry Branstad signed a bill to do just that by encouraging the growth of employee stock ownership plans (ESOPs).

Although this measure hasn’t received as much attention as the efforts to attract new companies to Iowa, the economic impact on companies, jobs and Main Street Iowa can be as significant.

ESOPs are qualified retirement plans that are invested primarily in the common stock of the sponsoring company. The business owner can plan for business succession, and employees get the benefits of ownership through the retirement plan.

Beginning July 1, 2013, the new law establishes a fund to help business owners offset the costs of evaluating whether an ESOP is the right approach. This law follows a measure passed in Iowa last year — the first of its kind in the nation — that gives business owners a tax break if they sell the company to employees through an ESOP. Those who sell at least 30 percent of the business to an ESOP can exclude 50 percent of the proceeds from capital gains tax. Combined, these two measures are a powerful incentive to grow the number of ESOPs in Iowa and the jobs that go along with them.

ESOPs give employees a stake in their company— a return on their sweat equity. Employees are encouraged to make the company successful because they share directly in any increased value.

West Des Moines-based Wright Tree Service is a good example of how ESOPs can benefit Iowa. Terry McGonegle, chief financial officer at Wright Tree Service, frequently talks about the benefits of the ESOP since it was implemented in 2002. Specifically:
• The ESOP allowed the company to remain in Iowa rather than being sold to an out-of-state competitor.
• The company has doubled its workforce throughout the nation, including Iowa.
• The ESOP has allowed more than $4 million in payroll to remain in Iowa.

ESOPs benefit business owners, companies, employees and Iowa. Business owners who want to learn more about the incentives can contact the Iowa Economic Development Authority, 800-245-4692.

Jerry L. Ripperger is director of consulting for retirement and investor services at Principal Financial Group Inc. Follow Jerry on Twitter @jlripperger.